Question

US economy has experienced a significant rise in its national debt over the last 30 years? What do you think the reasons for such change have been? What would you suggest for its remedy in the next decade? Explain your suggestions from the perspective of their economic impact.

Answer 1

US & National Debt
US have faced many fluctuations in its national debts due to various reasons. Especially after the II World War, the country has suffered very high and low national debt situations. Reduction in taxes and varying military expenses has affected the national debt of US. Public debt was at a high in 1980’s due to increased military expenses and reduced tax rates. Later, in the 1990’s the debt has reduced due to increased tax, reduced military expenses and economic boom but it doesn’t last much in keeping less national debt. Global crisis also led to high national debt due to reduced tax revenues and increased government spending.
The reason for the changes in the national debt is the efficient or inefficient spending of tax revenues and borrowed funds. The nation should reduce the military spending and create an optimum tax level which could benefit both the producers and the government. Increased spending in military expenses will reduce the ability of the government to meet other productive expenses that encourage the production and economy. Military and other like expenses being unproductive; the effect on demand side of the economy in common is very less which will reduce the consumption of goods thus reducing productivity of the economy. Government has to increase the spending of the funds collected from tax revenues and borrowings to boost the economy by increasing public demand on productive goods and services. This can automatically increase the revenue from tax without increasing the tax rate. Funds should be allocated for production incentives and direct transfer payments rather from spending excess on unproductive military and other expenses. Increasing public demand through public spending will increase the tax revenue and thus reducing the national debt that the country follows to meet its expenditures.